Monday, March 14, 2022

Daily Market Overview

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• New Chinese lockdowns sent main Chinese stock markets more than 3% lower, but didn’t translate in a general risk-off setting in Europe. The empty eco calendar did provide little guidance neither. Main European equity indices gain over 1% with commodity prices correcting further off peak levels. Main US indices trade flat (Nasdaq) to 1% higher (Dow) in the opening US trading hour. Ukraine and Russia plan more talks aiming to achieve a cease-fire even as fighting continues. Core bonds remain in sell-off mode with focus now turning to Wednesday’s FOMC meeting. US inflation expectations are flirting around 3% and ask for a strong signal by the Fed. Apart from an inaugural 25 bps rate hike, markets will well be interested in the peak policy rate projection in the updated dot plot and in policy plans with regard to the balance sheet run-off. US yields add 6.9 bps (2-yr) to 10.3 bps (10-yr) today with the belly of the curve underperforming the wings. The US 2-yr yield rises above 1.8% to the highest level since July 2019. The US 5-yr yield passes the 2%-threshold for the first time since May 2019. The same goes for the US 10-yr yield at 2.1% which approaches 62% retracement (resistance) of the 2018-2020 decline at 2.13%. The US 30-yr yield is closing in on the 2021 top of 2.51%. The German yield curve bear steepens today with yields adding 6.8 bps (2-yr) to 12 bps (20-yr). The German 10-yr yield reaches a new recovery high at 0.35%, the highest level since November 2018. European inflation expectations remain on the rise as well despite last week’s signal by the ECB (too little and especially too late?!). Peripheral yield spreads vs Germany remain broadly stable. The single currency slightly takes the upper hand against both the dollar and sterling in the current risk environment, even if the Bank of England is also set deliver (a third consecutive) policy rate hike on Thursday. EUR/USD changes hands around 1.0960 from an open at 1.09. EUR/GBP trades at 0.84 from 0.8370. The Japanese yen remains the stand-out loser with USD/JPY briefly trading above the 118 big figure for the first time since early 2017. It prompted soft verbal interventions from the Japanese government, but these didn’t impress markets. In a broader context, Central European currencies are staging an impressive comeback today. Their geographical proximity to the Russian invasion put a bull’s eye on their backs. Regional central bankers did damage controls via FX interventions and more regular rate hikes. The conflict amplifies an already huge inflation problem. Czech governor Rusnok today for example said that he expects inflation to peak around 13%-14% in May. Any way. EUR/CZK today dives back below the 25 big figure for the first time since end February. EUR/HUF dives from 383 to 373. A return sub 370 would give the MNB some breathing space in its weekly deposit rate tightening cycle. EUR/PLN fell from 4.8 to 4.7.
News Headlines:

• Swedish inflation unexpectedly jumped in February. The target measure or the Riksbank (CPIF, with a fixed interest rate) rose 0.9% on a monthly basis to reach 4.5% Y/Y (from 3.9% in January), the fastest pace of price increases since December 1993. The core CPIF index excluding energy prices also accelerated by 1.0% M/M to rise 3.4% Y/Y, all well above the 2.0% target of the Swedish central bank. The February release and the risk of persistent high levels in the wake of the crisis in Ukraine are questioning the monetary policy guidance of the Swedish Riksbank. At the February policy meeting, the central bank still indicated that it only expected the repo rate to be raised in the second half of 2024. The recent change in the ECB’s policy roadmap and a weak Swedish krona are additional reasons for the Riksbank to change its view on policy. The next policy decision is scheduled for April 28. The krona strengthened after the release from EUR/SEK 10.635 this morning to near 10.50. Swedish money markets now discount a 0.75% policy rate by the end of the year, compared to 0.40% ahead of the inflation numbers.

Graphs & Table

EUR/SEK: inflation figure prompting sharp repricing of rate hike expectations and offer relief for SEK

USD/JPY traded north of 118 for the first time since early 2017

EUR/CZK: CE currencies get more relief today, trading at their strongest levels since end February

US 10-yr yield sets new recovery top above 2.1% in the run-up to Wednesday’s FOMC meeting

Note: All times and dates are CET. More reports are available at which you may sign up to.

This document has been prepared by the KBC Economics Markets desk and has not been produced by the Research department. The desk consists of Mathias Van der Jeugt, Peter Wuyts and Mathias Janssens, analists at KBC Bank N.V., which is regulated by the Financial Services and Markets Authority (FSMA).
These market recommendations are the result of qualitative analysis, incorporating room for past experiences and personal assessments. The views are based on current market circumstances and can change any moment. The most prominent input comes from publicly available data, financial news, economic and monetary policies and commonly used technical analysis.
The KBC Economics – Markets desk has used reasonable efforts to obtain this information from sources which it believes to be reliable but the contents of this document have been prepared without any substantive analysis being undertaken into these sources.
It has not been assessed as to whether or not these insights would be suitable for any particular investor.
Opinions expressed are our current opinions as of the date appearing on this material only and can be opposite to previous recommendations due to changed market conditions.
The authors of this recommendation do not warrant the accuracy, completeness or value (commercial or otherwise) of any recommendation. Neither are the authors liable to those who receive these recommendations for the content of it or for any loss or damage arising (whether in tort (including negligence), breach of contract, breach of statutory duty or otherwise) from any actions or omissions of the authors in reliance on any recommendation, or for any claim whatsoever in respect of the content of, or information contained in, any recommendation. Any opinions expressed herein reflect the judgement at the time the investment recommendation was prepared and are subject to change without notice.
Given the nature of this advice (linked to currencies and interest rates) , the advice is overall not specific in nature.   As such there is no reference to any corporate finance contract and as such there is no 12 month overview based on the different advices.
This document is only valid during a very  limited period of time, due to rapidly changing market conditions.

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